Thursday, April 17, 2008

Is it possible these two have debated twenty two times? End it already.

To more pressing matters--

Is Democratic presidential candidate Barack Obama a 'marxist'? Weekly Standard editor and staunch neo-conservative William Kristol explores that possibility in a recent New York Times column. Kristol's evidence? In recent comments Obama suggested that "bitter" conservative voters "cling" to religion "as a way to explain" economic frustrations. Kristol compares Obama's comments to Karl Marx's famous assertion that religion is the 'opium of the masses' -- that religion blinds humans from truer experiences.

It wasn't Obama's best moment, not least because many people enjoy religion for the positive things it provides, including Obama himself. If Obama's religious beliefs are pure, would he like to tell us exactly who are the suckers? Questions like that make his comments easy political prey.

Nontheless, calling Obama a marxist is nonsense; throwing around the accusation makes Kristol look like a political hack. There are more important bases on which to worry about Obama's economic plans. Let's look instead at those.

For instance, Obama talks himself into a loop on the capital gains tax. The capital gains tax is a significant, complex issue: lowering the tax on capital gains can provide incentive for business investment; raising the rate can help raise government revenue (assuming businesses continue to invest). How much we tax capital accumulation holds crucial implications for how the economy performs. We must set the rate with extreme intelligence, for it is a tricky balance.

So what does Obama think about the capital gains tax? Take a look at the following dialogue with Charles Gibson of ABC News, during the April 16 debate with Hillary Clinton.

[After talking about income taxes]

GIBSON: All right. You have, however, said you would favor an
increase in the capital gains tax. As a matter of fact, you said on CNBC, and I
quote, "I certainly would not go above what existed under Bill Clinton," which
was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28
percent. But actually, Bill Clinton, in 1997, signed legislation that dropped
the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from
the tax increased; the government took in more money. And in the 1980s, when the
tax was increased to 28 percent, the revenues went down. So why raise it at all,
especially given the fact that 100 million people in this country own stock and
would be affected?

OBAMA: Well, Charlie, what I've said is that I would look at raising
the capital gains tax for purposes of fairness. We saw an article today which
showed that the top 50 hedge fund managers made $29 billion last year -- $29
billion for 50 individuals. And part of what has happened is that those who are
able to work the stock market and amass huge fortunes on capital gains are
paying a lower tax rate than their secretaries. That's not fair.
And what I
want is not oppressive taxation. I want businesses to thrive, and I want people
to be rewarded for their success. But what I also want to make sure is that our
tax system is fair and that we are able to finance health care for Americans who
currently don't have it and that we're able to invest in our infrastructure and
invest in our schools. . . .

GIBSON: But history shows that when you drop the capital gains tax,
the revenues go up.

OBAMA: Well, that might happen, or it might not. It depends on what's
happening on Wall Street and how business is going. I think the biggest problem
that we've got on Wall Street right now is the fact that we got have a housing
crisis that this president has not been attentive to and that it took John
McCain three tries before he got it right. And if we can stabilize that market,
and we can get credit flowing again, then I think we'll see stocks do well.

[END DIALOGUE]

The back-and-forth is revealing. Obama's answer to Gibson's question -- why raise the capital gains tax if revenues actually increasemore when it is lowered? -- is a reasonable one: he cites "fairness."

Well, Charlie, what I've said is that I would look at raising the capital gains
tax for purposes of fairness. We saw an article today which showed that the top
50 hedge fund managers made $29 billion last year -- $29 billion for 50
individuals. And part of what has happened is that those who are able to work
the stock market and amass huge fortunes on capital gains are paying a lower tax
rate than their secretaries. That's not fair.

The fairness concern is reasonable. In fact, a stockowner paying 15% on his or her investments, while a secretary paying a bit higher than that in income tax, certainly could appear unfair. However, first, Obama here is comparing two different kinds of taxes -- the capital gains tax of the investor, and the income tax of the secretary. The two taxes function differently; that is, different consequences flow from each. We can't judge them each on the same criteria, even well-minded criteria like 'fairness.'

Rather, we have to evaluate what we should do with capital gains based on the consequences that we will experience as a result of what we do. Here Gibson lectures Obama:

But history shows that when you drop the capital gains tax, the revenues go
up.

Why do revenues go up? Because low tax rates provide incentive for more investment. So while the rate of the tax goes down, the size of the tax pool goes up: more revenue results. Or so economists now think.

It is here that Obama ties himself up into a knot. He responds to the data-based argument Gibson cites by playing the skeptic. "Well, that might happen, or it might not," he says, referring to the uptick in revenue despite the lower tax rate. "It depends on what's happening on Wall Street and how business is going."

So Obama ends up making Gibson's point: The capital gains tax, as Gibson keeps imploring, directly regulates, as Obama puts it, what's happening on Wall Street and how business is going. And it also helps make Gibson's implicit point: That business goes better with a lower capital gains tax rate. I don't understand why some people deny that higher tax rates discourage business. It is empirically true, and logically sensible. You want more business, tax it lightly. You want business to leave you alone, tax it heavily.

Bottom line: The unwillingness of Barack Obama, the Democratic Party, and liberal well-minded people to be honest about fiscal policy and the most effective rates of taxation will hurt them in the November election, and it rightly should.

Financial Disclaimer

From time to time this blog will discuss stocks in which the author invests. I will always under all conditions disclose those investments and relations. However, whether I own a company's stock or not, any dicussion of any company and any mention of stock value or performance is for analytical and informational purposes only. Readers should not interpret this site as suggesting any particular investment strategy. I do not use this site to give investment advice.

AdvancingCompanies.com

Sociological Reports. Favorite Topics: advanced capitalism, economic growth, marketing, media, money, the Republican Party, successful companies, the national economy, politics, the global business environment, and the people who make it all so interesting.